Quick Facts

Cabo Verde’s economic freedom score is 66.4, making its economy the 60th freest in the 2015 Index. Its overall score is 0.3 point better than last year due to advancements in monetary stability and the rule of law as measured by property rights and freedom from corruption. Cabo Verde is ranked 3rd out of 46 countries in the Sub-Saharan Africa region, and its overall score continues to be much higher than the global and regional averages.

Over the past five years, economic freedom in Cabo Verde has advanced by close to 2.0 points, reflecting broad-based improvements in six of the 10 economic freedoms, including investment freedom, fiscal freedom, and the protection of property rights. In the 2015 Index, Cabo Verde has recorded its highest economic freedom score ever, progressing further into the ranks of the “moderately free.”

With macroeconomic stability well maintained and good governance firmly in place, Cabo Verde has made notable progress in economic growth and development. Its impressive transition to a more open and flexible economic system has been facilitated by policies that promote open markets and regulatory efficiency, buttressed by a transparent legal framework that upholds the rule of law.

Background

Cabo Verde is a stable, multi-party parliamentary democracy. Prime Minister Jose Maria Neves of the Independence for Cabo Verde Party took office in 2001 and was re-elected in 2006 and 2011. Opposition leader Jose Carlos Fonseca of the Movement for Democracy won presidential elections in 2011. The Cabo Verde islands have few natural resources. Severe droughts in the 20th century caused the deaths of 200,000 people and prompted heavy emigration. As a result, Cabo Verde’s expatriate population is larger than its domestic population. Services dominate the economy, and about 82 percent of the country’s food is imported. Economic reforms aim to boost foreign investment and diversify the economy.

Although Cabo Verde is among Sub-Saharan Africa’s least corrupt countries, the government launched a new program in 2014 to combat “serious ethical problems and strong indication of corruption” in the civil service. Private property is reasonably well protected. The constitutional provision for an independent judiciary is generally respected, but the judicial system is inefficient, and the case backlog causes significant delays.

The top individual income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax. The overall tax burden is equal to 18 percent of the domestic economy. Public expenditures equal 32.7 percent of gross domestic product, and public debt is nearly equivalent to the total size of the economy.

Steps to introduce greater regulatory efficiency have been implemented in recent years. It takes seven procedures and 10 days on average to incorporate a business, and no minimum capital is required. Despite reform efforts, labor market rigidity persists. The market determines most prices, but the government subsidizes electricity and water as well as a state-owned, loss-making airline.

Cabo Verde’s average tariff rate is 10.2 percent, and non-tariff barriers are relatively low for the region. Domestic and foreign investors are generally treated equally under the law. Banks dominate the small financial sector. They remain well-capitalized, and the number of nonperforming loans is decreasing. Small and medium-sized companies have access to credit that is allocated on market terms, but capital markets are not fully developed.